With Keystone in doubt, some look east as route for Alberta crude

With the future of the Keystone XL and Northern Gateway pipelines in doubt, an alternative route that would see Alberta bitumen shipped to the East Coast is gaining traction.

The idea is being trumpeted as a way to ease the bottleneck of crude oil in Alberta while lowering costs for refineries in eastern Canada.

The proposed pipeline would carry western crude to Sarnia in southwestern Ontario, then on to Montreal, Que., and possibly to Saint John, N.B., by rail or barge.

“Western Canada has an abundance of crude and it’s struggling to find refineries to process it,” Dave Collins, vice-president of Wilson Fuel Co. Ltd., said Tuesday.

“Piping it east is doable but it’s a lofty goal. It’s an idea that needs to be explored but it might prove to be too costly.”

A pipeline to the East Coast is being championed by former New Brunswick premier Frank McKenna as a national unity project that will keep value-added spinoffs and jobs from the oilsands in Canada.

Also, proponents say much of the pipeline or necessary right-of-ways are already in place and that it would provide an alternative route for industry players scrambling to get Alberta bitumen to market.

TransCanada Corp.’s proposed Keystone XL pipeline from Alberta to Texas is stuck in the political quagmire of the United States presidential race. Meanwhile, Enbridge Inc.’s tentative Northern Gateway pipeline to the West Coast faces stiff opposition from environmental groups and First Nations.

With those two proposed pipelines mired in uncertainty, a pipeline to the East Coast begins to look more attractive.

Enbridge, for example, has earmarked $2 billion to deliver western oil to eastern refineries while TransCanada is reportedly in the early stages of considering a massive $5.6-billion eastern pipeline system.

Independent energy expert Tom Adams called the push to get Alberta crude to market a “big race.”

“There is an oil glut developing in central North America and given falling demand and rising output from unconventional oil sources, it’s not going away.”

These conditions have lowered the cost of western crude but prices for Brent crude oil, used by refineries in eastern Canada, are “in the stratosphere,” Adams said.

“You’ve got this widening gap between the price of crude oil in the middle of North America versus the price of oil on the east coast.”

Despite the heady rush to pipe western crude to energy-hungry markets, Adams said shipping Alberta bitumen as far as Atlantic Canada remains far-fetched.

“It is an absolute certainty there will be new big-capacity pipelines constructed to take oil out of the central area of the continent,” he said, noting that Sarnia will likely be a key destination.

Yet shipping oil further east is unlikely, Adams said, pointing to a plethora of issues including steep costs.

But even if a pipeline to the East Coast was a success despite all odds, Adams said it wouldn’t likely help the prospects of the Imperial Oil Ltd. Dartmouth refinery.

He said refineries situated closer to Alberta are still at an advantage while smaller, older refineries along the eastern seaboard are struggling to compete.

“Imperial is losing interest in refining oil in Nova Scotia for the same reason that refineries from Maine all the way down the coast are losing ground. They just can’t be competitive in this market.”

Roger McKnight, a senior petroleum adviser for En-Pro International of Oshawa, said piping Alberta crude east faces huge hurdles.

“It would technically be difficult and very expensive for refineries in Eastern Canada to switch from using a light sweet crude to heavy sour,” he said.

“You can’t just turn the switch and go from strawberry to chocolate milk. It would be a very complicated project and the economics just aren’t there. Frankly, it’s a pipe dream.”